Global Developments in 2022

The global economy faced a series of destabilising shocks in 2022, derailing global economic recovery. The path towards recovery was upended primarily by the war in Ukraine, which led to prolonged supply-chain imbalances, commodity price shocks, an energy crisis in Europe, and multi-decades high inflation across most advanced economies. The intensification of global inflationary pressure prompted aggressive monetary policy tightening by major central banks to restore price stability, leading to a sharp tightening of global financial conditions. This also led to concerns of rising recessionary risks in both advanced economies (AE) and emerging market and developing economies (EMDE). Moreover, China’s economic slowdown amid continued COVID-19 related disruptions and the stress in the real estate market also weighed on the global economy. The International Monetary Fund (IMF) in its World Economic Outlook in October 2022 forecasts global growth to slow to 3.2% in 2022 from 6.0% in 2021, while noting that countries accounting for at least one-third of the global economy are poised to contract in 2022 or 2023.

Global financial markets performances were weaker in 2022 as a confluence of factors from sharp tightening of global financial conditions, concerns over repercussions of the war, to rising recessionary risks resulted in volatility in global financial markets throughout the year. Consequently, the overall level of global financial stress had increased markedly since early in the year (Chart 1). In the global equity market, both the MSCI World Index and the MSCI Emerging Markets Index recorded doubledigit declines of -19.5% and -22.4% respectively in 2022.

Meanwhile, in the global bond market, bond yields were significantly higher in 2022, led by the US Treasury 10-year note, given multi-decades high inflation across advanced economies and continued expectations of steeper interest rate hikes by major central banks, leading to weak performance of the major bond indices (Chart 2).

chart 1

Global financial stress levels increased in 2022, with intermittent episodes of volatility throughout the year amid a myriad of factors

OFR Global Financial Stress Index (FSI) and Malaysia FSI

Note: The Global FSI is from the Office of Financial Research, US Department of Treasury, while the Malaysia Financial Stress Index (MFSI) is internally estimated following a similar methodology (see Monin, 2017). Value of FSI above zero indicates higher than historical average financial stress in the economy.

Source: US Office of Financial Research (OFR); the SC’s internal estimates.

In the global equity market, both the MSCI World Index and the MSCI Emerging Markets Index recorded doubledigit declines of -19.5% and -22.4% respectively in 2022. Meanwhile, in the global bond market, bond yields were significantly higher in 2022, led by the US Treasury 10-year note, given multi-decades high inflation across advanced economies and continued expectations of steeper interest rate hikes by major central banks, leading to weak performance of the major bond indices (Chart 2).

CHART 2

Global equities and bonds registered weaker performances in 2022.

Performance of global equity market

Source: Refinitiv Eikon Datastream; the SC’s calculations.